Overview

Despite its history of democratic government since 1958, Venezuela stands on the brink of potential civil war that could claim thousands of lives and plunge world oil markets into further chaos. If some observers are correct, the situation may be suspiciously similar to other cases of Latin American conflicts provoked and supported by the United States. As the world’s 5th largest oil producer the stakes are extremely high, which may suggest the dark motives behind the discord.

Despite recent legislation to open Venezuelan industry to foreign investment, one of the propaganda themes used to criitcize the Chavez administration has been concerms that he intends to move the country toward a Castro-syle communist state. At a time when the Middle East is undergoing an uncertain transition, preserving the peace in Venezuela should be a priority, yet the discord threatening stability in the Americas, has received relatively little attention.

Venezuela is the world's fifth-largest crude exporter and a major U.S. oil supplier. Political conflict could, once again, disrupt oil exports at a time when the U.S. is experiencing unusually high oil prices. Chavez may be able to hold power, but to do so risks an escalation to civil insurrection.

Venezuela is a minor producer of illicit drugs, however drug cartels in neighboring Colombia ship narcotics through Venezuela and are active in narcotics-related money-laundering activity in the Colombia border regions and on Margarita Island.

In Fall 2006, Venezuelan President Hugo Chavez caused a major political flap. Speaking at the UN Chavez remarked that the "devil," US President Bush had appeared earlier at the same podium and that he could still smell the supher in the air. Although the comment was inappropriate, it was interesting to see the audience reaction, which Chavez may have found encouraging.

After several unsuccessful uprisings, the country won independence from Spain in 1821, under the leadership of Simon Bolivar. Venezuela, Colombia, Panama, and Ecuador, were part of the Republic of Gran Colombia until 1830, when Venezuela broke-off to become and independent state.

Like most of Latin America, Venezuela endured political instability, dictatorial rule, and revolutionary turbulence. Since the overthrow of Gen. Marcos Perez Jimenez in 1958, Venezuela has adopted a tradition of civilian democratic rule, but not without challenges to political authority. The country holds free and open elections and, since 1858, has banned military involvement in national politics.

Under the nationalization Law of 1975, Venezuela took control of the oil industry. Petroleum accounts for an estimate one-third of the Venezuelan GDP and 80% of exports, as a result, the country’s prosperity is closely tied to oil prices and political upheaval that impacts on oil income sends shock waves through the entire economy.

In 1989, over 200 people were killed in riots protesting economic austerity measures imposed by President Carlos Andres Perez. After two unsuccessful attempts by military officers to overthrow Perez, he was impeached in 1992 on corruption charges.

Venezuelans became increasingly unhappy with the country’s continuing economic problems and inequities and in December 1998 elected Hugo Chavez Frias as president. Chavez, who had been involved in the attempted military coup, promised real reform, constitutional change, and elimination of government corruption, earning him support from the poor and working classes.

Between 1998 and 2000, Chavez organized the national Constituent Assembly (ANC), which revised the country’s constitution. The constitution was approved by referendum in 1999, and Chavez was again elected president in 2000.
Despite the changes, reforms were slow to materialize and in April 2002, when 500,000 protesters marched in Caracas, demanding Chavez’s resignation, gunfire erupted, killing 18 people. Chavez was arrested by a group of opposition military officers and Pedro Carmona declared himself president, before military leaders, loyal to Chavez returned him to power.

The U.S. was accused of encouraging and supporting the opposition coup to overthrow President Chavez. (“US Involvement in Attempted Chavez Coup” – The Guardian)

Chavez assembled the Tripartite Group in August 2002 to establish negotiations between the government and the opposition groups, including representatives from the Organization of American States, the UN Development Program, and the Carter Center. Before the Tripartite group could make progress, opposition groups called for strikes that shut down Venezuela’s economy.

To help forestall political violence, the Tripartite Group, with international participation implemented a constitutional recall referendum provision. Amid disagreements over the process, petitioners collected recall signatures, but the National Election Council rejected the petition in February 2004, claiming the petition was riddled with fraud, provoking a new round of street violence.

The opposition charges Chavez with manipulating the NEC and acting like a dictator. Supporters of Chavez, a populist with strong support among the country’s poor, claim that attempts to overthrow Venezuela’s duly elected president are the work of the wealthy business elites backed by the U.S. government.

OIL & CONFLICT

Economic prospects remain highly dependent on oil prices and the exportation of petroleum. The collapse of oil prices in 1997-98 prompted the Chavez administration to expand OPEC-inspired production cuts in an effort to raise world oil prices. In 2002, this sector accounted for roughly a quarter of GDP, 73% of export earnings, and about half of central government's operating revenues. Venezuela is the fourth-leading supplier of imported crude and refined petroleum products to the United States.

The Government of Venezuela has opened up much of the hydrocarbon sector to foreign investment, promoting multi-billion dollar investment in heavy oil production, reactivation of old fields, and investment in several petrochemical joint ventures.

Almost 60 foreign companies representing 14 different countries participate in one or more aspects of Venezuela's oil sector. The Venezuelan national oil company Petroleos de Venezuela, S.A. (PDVSA) and foreign oil companies have signed 33 operating contracts for marginal fields inthree bidding rounds. New legislation dealing with natural gas and petrochemicals is further opening the sector. A new domestic retail competition law, however, disappointed investors who had been promised market-determined prices.

On November 13, 2001, under the enabling law authorized by the National Assembly, President Chavez enacted the new Hydrocarbons Law, which came into effect in January 2002. This law replaced the Hydrocarbons Law of 1943 and the Nationalization Law of 1975.

Among other things, the new law provided that all oil production and distribution activities were to be the domain of the Venezuelan state, with the exception of joint ventures targeting extra-heavy crude oil production. Under the new Hydrocarbons Law, private investors can own up to 49% of the capital stock in joint ventures involved in upstream activities. The new law also provides that private investors may own up to 100% of the capital stock in ventures concerning downstream activities, in addition to the 100% already allowed for private investors with respect to gas production ventures, as previously promulgated by the National Assembly.

During the December 2002-February 2003 general strike, petroleum production and refining by PDVSA almost ceased. Despite the strike, these activities eventually were substantially restarted. Out of a total of 45,000, 19,000 PDVSA management and workers were subsequently dismissed because the government asserted they had abandoned their jobs during the strike.

. In April 2000, Venezuela's President decreed a new mining law, and regulations were adopted to encourage greater private sector participation in mineral extraction. A range of other natural resources, including iron ore, coal, bauxite, gold, nickel, and diamonds are in various stages of development and production

Venezuela utilizes vast hydropower resources to supply power to the nation’s industries. The national electricity law is designed to provide a legal framework and to encourage competition and new investment in the sector. After a 2-year delay, the government is proceeding with plans to privatize the various state-owned electricity systems under a different scheme than previously envisioned.

Despite the recent legislation opening Venezuela to foreign investment, President Chavez , the target of intense criticism, strikes and rebellion from Venezuela's upper classes and union members, has received surprisingly little substantive international support. Admittedly, there have been increasing human rights violations, but not to the level that's been tolerated in other Latin American nations. It seems that Chavez's ideas for reform have struck a nerve within the country and among the world powers.

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